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The 11th District Cost of Funds is more prevalent in the West and
the 1-Year Treasury Security is more prevalent in the East. Buyers prefer the
slowly moving 11th District Cost of Funds and investors prefer the 1-Year
Treasury Security.
The monthly weighted average Eleventh District has been published
by the Federal Home Loan Bank of San Francisco
since August 1981. Currently more than one half of the savings institutions
loans made in California are tied to the 11th District Cost of Funds (COF)
index.
The Federal Home Loan Bank's 11th District is comprised of saving
institutions in Arizona, California and Nevada.
Few people who use and follow the 11th District Cost of Funds
understand exactly how it is calculated, what it represents, how it moves and
what factors affect it.
The predecessor to the 11th District Cost of Funds index was the
District semiannual weighted average cost of funds published for a six month
period ending in June and December. The San Francisco Bank was the first Federal
Home Loan Bank to publish a monthly cost of funds index.
The funds used as a basis for the calculation of the 11th District
Cost of Funds index are the liabilities at the District savings institutions:
money on deposit at the institutions, money borrowed from a Federal Home Loan
Bank (known as advances) and all other money borrowed. The interest paid on
these types of funds is the cost of these funds.
The ratio of the dollar amount paid in interest during the month to
the average dollar amount of the funds for that month constitutes the weighted
average cost of funds ratio for that month.
The average cost of funds is said to be weighted because the three
kinds of funds and their costs are added together before a ratio is computed
rather than calculating averages individually for the three sources and using a
simple average of the three ratios. This gives the greatest weight to the
interest paid on deposits, and explains the delayed reaction of the index to
rising fixed-rate mortgages.
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